Vietnam wooing Korean firms anew

CA - Korea is one of Vietnam’s most important business investors, but that may soon change amid rising labor costs, inflation and global economic instability.

Since 1992, when Korea and Vietnam established formal relations, bilateral trade between the two countries soared 20 fold from $500 million in 1992 to more than $10 billion in 2009. The rise continued unabated to reach $14 billion in 2010 and, in the first half of this year, $9 billion ― an increase of about 60 percent compared to same period last year.

Currently Korea is Vietnam’s largest investor, with $24 billion poured into some 2,800 projects throughout the country. Korea is also Vietnam’s second largest Official Development Assistance (ODA) donor country providing more than $1 billion in ODA over a 15-year period from 1995.

The huge presence of Korean companies in Vietnam, the billions of dollars invested and construction projects completed there have resulted in tremendous socio-economic progress for Vietnam. That success, however, has driven up labor costs and the expectations of Vietnamese workers.

A survey by Navigos Group, the largest employment recruitment provider in Vietnam, estimates wages increased more than 16 percent on average from April 2008 to March 2009.

According to Navigos’ Vietnam Salary Survey 2009, gross salary increased for most industries. He added that the real estate and property development sector rose more than 23 percent and financial services, which had led salary increases for 2006 and 2007, dropped to 2nd place at 22 percent.

“Inflation in Vietnam is a serious issue,” said Vietnamese Amb. Tran Trong Toan, in an interview at the country’s embassy in Seoul this month. “Wages are expected to increase 12 percent this year to manage increased living expectations of Vietnamese in the work force,” Tran said, adding that at the same time “the government is encouraging investors to improve working and living conditions for their employees.”

The top priority for the Vietnamese diplomatic mission here is to keep Korean investment and development assistance flowing into Vietnam. So, Vietnam is looking to ways around rising labor costs by talking up other characteristics attractive to Korean business investment.

However Tran was quick to point out that labor costs in Vietnam are still competitive despite inflation saying the average worker there makes about $1,000 a year while listing other advantages.

He said that Vietnam has over a thousand miles of coastline, natural resources and a skilled workforce, making the country itself a good market to tap into and a gateway to the Southeast Asian regional market.

Its stable political environment and consistent Doi Moi policy ― the capitalist reforms initiated in Vietnam since 1986, makes it a safe place to invest, Tran said.

Tran pointed to specific bilateral agreements, too, special investment pacts that tie the two countries together. These agreements draw businesses to Vietnam over other countries in Southeast Asia, such as pacts on investment promotion and protection, on the avoidance of double taxation.

The ASEAN-Korea FTA, which was signed in 2003, further fueled the growth of Korean business investment in Vietnam.

President Lee Myung-bak upgraded the relationship between the two countries when he made a state visit to Vietnam in 2009. Now the pair are working to follow through on that agreement. Amb. Tran said: “The top bilateral issue between Korea and Vietnam now is how to successfully implement the Strategic Cooperation Partnership established.”

If the current trend persists, two-way trade will reach $20 billion by 2015, and Korea will cement its position as Vietnam’s biggest business investor, pumping an additional $3 billion in development assistance in the next four years, Tran said.